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Test Your Net Worth IQ: How Do You Measure Up?

If you’re still nursing a 2013 money hangover, the New Year is the ideal time to take stock of your overall financial health.

One of the single best indicators of your financial condition is a calculation known as your net worth, which aims to provide you a broad picture of your finances by tallying your total assets minus total debts.

(If you use Mint.com, this number can be easily found on the left-hand column of your home page.)

But understanding what your net worth is really about can be a bit difficult, so we’ve created this quiz to help you flex your net worth IQ.

Question 1: What counts as an asset?

A: Your car

B: Your engagement ring

C: Your investment portfolio

D: Your emergency savings

E: All of the above

The correct answer is E (all of the above). For the purposes of net worth calculations, all of your assets should be included, including physical assets (jewelry, vehicles, homes) and non-tangible asssets (investments, savings accounts, etc).

Question 2: Joey has a 401(k) retirement account, which he can’t touch without penalty until he reaches the age of 59.5. Does this count as an asset?

A: No, since he can’t use it until well into the future.

B: Yes, since it’s still an asset.

C: It depends on when he intends on using it.

D: None of the above.

The correct answer is B. A retirement account is an asset which should be included in your net worth – even if you don’t intend on touching it for decades.

Question 3: Lauren has been very prudent with loans, only taking out “good” debt to finance her graduate education. Should student loans be counted in her net worth?

A: Yes, but she should subtract the amount she intends on paying off this year.

B: No, since student loans are good debt that will help her build her finances in the future.

C: No, since she can defer the loans or put them on a slower payment plan if she faces financial difficulty.

D: Yes, since student loans are still debt.

The correct answer is D. Even so-called “good” debt is debt, no matter if you intend on deferring it or if it’ll help you land a high-paying job, so you should include it in your net worth calculation.

Question 4: Carl has a negative net worth. What is the best way to improve it?

A: Save more money.

B: Pay off debt.

C: Increase the value of his investments.

D: See his home increase in value.

E: Any or all of the above.

The correct answer is E. Any or all of these solutions could either increase his assets or decrease his debt, thereby pulling his net worth out of the red.